By Joyce Yu
Philadelphia, PA–Wall Street has erased most of its gains for the year after heavy losses this week. U.S. stocks opened higher on Friday before losing all the gains and turned red again. Nicholas Colas, co-founder of DataTrek Research, wrote in a report that “Stocks won’t bottom until long term Treasuries rally hard”, noting the sell-off will end until bond yields fall sharply.
On track to post its largest weekly decline since October 2008, the Dow dropped 1,032 points Thursday, its second drop of more than 1,000 points this week. U.S. stocks landed in a correction, a 10% decline from previous highs. Stocks falling more than 10% this week include 3M, American Express and Exxon Mobil. Beginning last Friday after a better-than-expected jobs report prompted inflation fears, the sell-off gained momentum Monday after the yield on the benchmark 10-year Treasury note hit a 4-year high, sending the Dow tumbling another 1,175 points as investors grew more wary about tightening of money easing policies.
While the market has been moving in wild ranges, analysts called on investors to stay calm because the fundamental is strong. Traders will turn their attention to next week’s U.S. consumer-price data which is expected to provide some direction for the marketing moving forward: interest rates will rise if inflation gathers pace, and this will dent earnings and consumer-spending power.
A reassessment of the inflation outlook at this point in the cycle is natural and markets are adjusting for this,” Kerry Craig, a Melbourne-based global market strategist at JPMorgan Asset management, said in a note. “Markets still haven’t adjusted to the expectation that the U.S. Federal Reserve could raise rates four times in 2018. Next week’s U.S. inflation figure will be a key indicator: a stable number will reassure markets, but a strong inflation print may cause more market consternation.”
Wall Street’s rate shock is “a bit alarming” because it’s “another reminder of our addiction to cheap money,” Kit Juckes, global fixed income strategist at Societe Generale, wrote in a report on Friday. Veteran investor Jim Rogers named high level of debt as the culprit of a potent bear market. “Debt is everywhere, and it’s much, much higher now,” He said in a phone interview with Bloomberg. “When we have a bear market again, and we are going to have a bear market again, it will be the worst in our lifetime.”
“Jim has been talking about severe corrections since I started in business over 30 years ago,” said Alibaba Group Holding Ltd. President Mike Evans, a former Goldman Sachs Group Inc. banker. “So I’m sure he’ll be right at some point.”
